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Commercial Property, Residential Property

TBC has business real property implications

transfer balance cap property

Holding business real property inside an SMSF may not be as advantageous as it once was due to restrictions imposed by the transfer balance cap.

A senior technical services expert has recommended trustees reconsider their approach to holding business real property inside an SMSF in the wake of the transfer balance cap being introduced.

SuperConcepts SMSF technical services executive manager Mark Ellem said previously favouring holding business real property inside an SMSF would have almost been automatically justified but the implementation of the super reforms has added a new consideration to that strategy.

“In the past we could have the building in the SMSF and no matter what value it was we could sell it when the fund was totally in retirement mode and we would get the proceeds from the sale of that asset totally tax-exempt because it would be sold as part of the pension account,” Ellem said.

“But because of the transfer balance cap restrictions, now we may not have that luxury. We may not have the total capital gain on the sale of the asset held by the super fund tax-exempt – we may be paying some tax.”

He pointed out this situation means holding business real property outside of an SMSF may now be more tax-effective because a sale under these circumstances could have the proceeds qualify for favourable tax treatment under the small business capital gains tax (CGT) relief provisions.

“So the issue is when trustees want to buy a business premises they now have to consider whether they would qualify for the small business CGT concessions if the asset was purchased outside the fund,” Ellem said.

“Now again we’re talking about a long time down the track, and who knows what the rules will be then, but we can only work within what the law is today an trustees should be aware there is an alternative to holding the asset inside of super that needs to be considered.

“At the end of the day if the trustee makes the decision to hold the asset inside of super, then they would have made it knowing that there was another option.”

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